TOPEKA – In one of the final acts of the 2013 legislative session, the House of Representatives and the Senate on Sunday sent a long-awaited tax bill to the governor, who is expected to sign it.
The bill, which walks back some of the tax relief from last year’s tax bill, is projected to increase state tax revenue by $777 million over the next five years, compared to current law.
It does that by setting the state sales tax at 6.15 percent – lower than the current 6.3 percent but higher than the 5.7 percent that the rate would have reverted to under a 2010 law that established a three-year emergency sales tax increase to help the state through the recession.
The bill also cuts income tax rates, but simultaneously phases down the value of most tax deductions, which nearly offsets the tax relief gained from the lower rates.
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Supporters largely acknowledged that they had gone too far with last year’s tax cuts, leaving the state unable to pay for vital services without revisions this year.
The final version of the tax bill also contains a provision, inserted at the last minute, to allow county commissions to abate taxes on homes and mobile homes destroyed in natural disasters.
That was added in response to a situation that arose last year when tornado victims in south Wichita were charged a full year of property taxes for houses and mobile homes destroyed in April.
The bill is retroactive to the beginning of 2012, so Sedgwick County commissioners can now abate the disaster victims’ taxes if they choose to do so.
The fight over the tax bill had been the hangup that forced an expected 80-day session to run 99 days.
Although the bill passed the House early Sunday, which would have been the 100th day, the session will go in the books as 99 because the Legislature worked straight through and technically didn't adjourn its Saturday deliberations.
In the end, the tax battle became less a financial issue than a clash of governing philosophies.
Democrats railed that the bill represented a shift in the tax burden from wealthier taxpayers and businesses to the bottom 60 percent of state taxpayers.
Minority Leader Paul Davis, D-Lawrence, urged his Republican colleagues to listen to their ordinary working-class constituents.
"How many of them said 'You know what? I want you to go to Topeka. I am sending you to Topeka because I want you to raise my taxes. I want that $777 million tax increase.'"
Republicans were adamant that the state needed to protect the zero-income tax rate granted to certain types of businesses last year and keep cutting income tax rates – even if it means higher sales taxes – to spur business growth.
The tax plan doesn't touch the centerpiece of last year's plan, the complete elimination of income taxes on owners of limited liability companies, farms, sole proprietor businesses and corporations organized under Subchapter S of the federal tax code.
"I think we'll have a very positive impact with new companies moving to the state of Kansas near Lawrence and KU and Wichita, near K-State, near Pittsburgh and near Hays, with businesses that provide very well-paying jobs that they (workers) can afford to send their children on to higher education," said Rep. Richard Carlson, R-St. Marys, chairman of the House Taxation Committee and the driving force behind the tax bill. "I think this will grow the state and bring those jobs to the state."
Among the key provisions of the tax plan:
– The top income tax rate for those earning more than $30,000 a year would be reduced from 4.9 percent to 3.9 percent over five years. Rates for the under-$30,000 bracket will drop from 3 to 2.3 percent.
– As rates drop, the plan also phases down the value of tax deductions. While charity giving would still be fully deductible, the value of other deductions will be gradually be cut down to 50 percent by 2018. Gambling losses would no longer be deductible.
– Standard deductions used by lower-income taxpayers who don't itemize would be set at $5,500 for single-parent families and $7,500 for married couples filing jointly. That's a smaller deduction than the $9,000 level that was part of the 2012 tax plan.
– The plan would partially restore a food-sales-tax rebate program for the working poor.
– After 2018, growth of government would be capped at 2 percent a year, with any additional revenue being diverted to buying down the income tax rate.
The Legislative Research Department estimates that the new tax plan would generate deficit spending of $95.8 million to $182 million a year from 2014 to 2018 – deficits that would be covered from state reserves.
Gov. Sam Brownback and other Republicans are confident that increased business, jobs and commerce spurred by income tax cuts will offset those projected revenue losses.